60 Pages Posted: 20 Dec 2015 Last revised: 18 Mar 2020
Date Written: December 12, 2019
We document that investors derive nonpecuniary utility from investing in dual-objective VC funds, thus sacrificing returns. Impact funds earn 4.7 percentage points (ppts) lower IRRs ex post than traditional VC funds. In random utility/willingness-to-pay (WTP) models investors accept 2.5-3.7 ppts lower IRRs ex ante for impact funds. The positive WTP result is robust to fund access rationing and investor heterogeneity in fund expected returns. Development organizations, foundations, financial institutions, public pensions, Europeans, and UNPRI signatories have high WTP. Investors with mission objectives and/or facing political pressure exhibit high WTP; those subject to legal restrictions (e.g., ERISA) exhibit low WTP.
Keywords: Impact investing; venture capital; private equity; socially responsible investment; United Nations Principles of Responsible Investment (UNPRI); sustainable investing; public pension funds; willingness to pay; random utility discrete choice models
JEL Classification: G11; G21; G22; G23; G24; G28; H41; M14
Suggested Citation: Suggested Citation